A new report from Niti Aayog has highlighted a concerning trend in India's international trade, even as the country aggressively pursues new free trade agreements. The government think tank's 'Trade Watch Quarterly' report, released on Tuesday, indicates that India's trade deficit with its FTA partner countries surged by a sharp 59.2% during the first quarter of the fiscal year 2026 (April-June 2025) compared to the same period the previous year.
Sharp Contraction in Exports Drives Widening Gap
The dramatic increase in the trade imbalance was fueled by a dual movement: a significant rise in imports coupled with a decline in exports. According to the data, India's imports from FTA partners grew by 10% to reach $65.3 billion. Conversely, exports to these countries fell by 9% to $38.7 billion. This resulted in a significantly larger trade gap, raising questions about the current benefits derived from existing trade pacts.
The contraction was notably severe with the Association of Southeast Asian Nations (ASEAN) bloc, which is India's largest FTA export destination. Exports to ASEAN nations fell by 16.9% year-on-year. Other major partners like Malaysia (-39.7%), Singapore (-13.2%), and Australia (-10.9%) also saw steep declines. Exports to the UAE, India's second-largest FTA market, dipped modestly by 2.1%.
Electronics Sector Emerges as a Standout Performer
Amid the overall export slump, one sector displayed remarkable resilience and growth, pointing to a structural shift in India's export basket. The electronics export sector grew by an impressive 47% year-on-year. This surge has increased its share to over 11% of India's total exports, underscoring the country's deeper integration into global electronics supply chains, as noted by Niti Aayog.
This performance stands in stark contrast to traditional mainstays like petroleum exports, which witnessed a sharp decline during the quarter. The rise of electronics highlights the success of production-linked incentive (PLI) schemes and marks a significant diversification of India's export profile.
ASEAN Renegotiation Stalls as Imports from Key Markets Rise
The report comes at a time when India is actively engaged in FTA negotiations with several major economies, including the European Union, the United Kingdom, and the United States, to diversify its export markets and mitigate the impact of external tariffs. However, efforts to renegotiate the terms of the existing trade agreement with ASEAN have hit a roadblock. India and ASEAN missed a key deadline set for the end of 2025 to conclude the review. In a contrasting development, ASEAN and China signed an upgraded free-trade agreement in October last year.
On the import front, India's reliance on its top trading partners intensified. The share of imports from the top seven markets—China, UAE, Russia, and the USA—increased to around 43% of total imports in Q1 FY26, up from 39% a year earlier. This amounted to $76.7 billion. Significant yearly import growth was recorded from the UAE (28.7%), China (16.3%), the USA (16.9%), and Singapore (14%).
The report detailed that rising imports from the UAE were primarily driven by new inflows of gold compounds and petroleum oils. Interestingly, gold compounds, which were previously not imported from the UAE, have now made the Gulf nation a top source. Imports from China surged in specific electronics sub-categories like circuit boards and integrated circuits, reflecting continued demand for components.
As India continues its ambitious trade diplomacy, the Niti Aayog report presents a nuanced picture: a widening overall deficit that calls for strategic review of existing agreements, juxtaposed with the stellar rise of a modern, high-growth export sector in electronics. This duality will likely shape New Delhi's approach in ongoing and future trade negotiations.
